Intellectual Property Law

In May we reported on the Supreme Court?s decision in eBay v. MercExchange, in which the Court repudiated the long-held rule that a patent owner was entitled to a presumption of irreparable harm upon a finding of infringement of its patent. Under this rule, critics complained that a permanent injunction had become almost automatic for successful plaintiffs, which put an unfair amount of pressure on accused infringers to settle cases of even questionable merit. The Supreme Court in the eBay case applied the traditional four-part test for granting an injunction ? (1) irreparable harm, (2) absence of an adequate remedy at law, such as damages, (3) the balance of hardships favors the granting of an injunction, and (4) the public interest would not be harmed by the granting of an injunction.

The impact of the eBay decision has already been felt at the district court level. In z4 Technologies v. Microsoft, the District Court for the Eastern District of Texas refused to issue an injunction against the defendants after specifically citing and applying the four factors articulated by the Supreme Court. z4, which owns two patents that disclose methods for limiting the unauthorized use of computer software, sued the defendants for infringement. The jury rendered a verdict finding that the defendants infringed the patents and that the patents are valid. Based on those findings, the jury award z4 over $130 million in damages.

z4 then sought to permanently enjoin the defendants from practicing its invention. The district court held that z4 was not entitled to a presumption of irreparable harm and that it had failed to establish irreparable harm because, in essence, the parties are not in direct competition. The court also found that a reasonable royalty rate could be determined on infringing sales, so z4 has an adequate remedy at law. Finally, the court concluded that the balance of hardships favors the denial of an injunction and that the public interest would be harmed if an injunction were issued. Because z4 did not prevail on any of the four factors, the court denied its request for an injunction.

Is this the beginning of a trend that will render injunctions obsolete in patent cases? What will the economic consequences of fewer injunctions be? Read the Blawg to see how this plays out.

Today's Blogger: Bob Sloss